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HiPOS Update: New Short Call Spread Added

By Derek Moore

New HiPOS Conservative Trade Added to Existing Position

We were able to take advantage of the recent move higher in markets and continued volatility to add a short call spread above the market.

Since we already had a short put spread, the combination of being short spreads above and below the market forms an Iron Condor position. It also adds an additional 1% to our target profit. All while keeping the same November 4th expiration date. This doesn’t add risk per say, as markets can’t be two places at once, but does mean we don’t want markets to move too much in either direction.

In recent years, with increased volatility, Iron Condor opportunities have arisen at times that qualify under our strict rules for entry.

Reviewing The Updated Graph

Above you can see that we now have purple curved lines above and below the S&P 500 Index price chart.

We also can see the short strikes representing the calls and puts respectively by those orange dotted lines. While this may look a little different, the same premise applies whereas time ticks by, markets have more room to breathe in either direction. This is represented by the lines sloping to the right and further down (or up with calls).

The expiration date of November 4th stays the same and you can see we now have only 7 trading days until expiration.

What Are You Rooting For?

With Iron Condors, ideally the market is flat as a pancake through expiration date.

Really though, movement up or down in any direction is fine so long as it’s not an outsized move in either direction. Time decay will accelerate as we move closer to November 4th and time decay is happening on both sides of the trade now. Any significant drop in volatility would also be welcome as the option premiums would soften as a result. Remember we sell premium and want it to eventually expire at zero on expiration.

Below I’ll post an updated list of the particulars with anything new or changed in bold.

As always, reach out to a member of the ZEGA team with any questions or to learn more about HiPOS.

Now for the (Updated) Particulars: 

  • Index: S&P 500 Index
  • Position type: Short Iron Condor
  • Short put strike: 3150
  • Long put strike: 3100
  • Short call strike: 4250
  • Long call strike: 4300
  • Put Spread Risk (prob. ITM): < 1% at time of entry
  • Call Spread Risk (prob. ITM): < 3% at time of entry
  • Targeted total return: ~2.1%
  • Distance Put Strike OTM: ~17.8% at time of entry
  • Distance Call Strike OTM: ~ 9.5% at time of entry
  • Expiration: November 4th, or 6.5 trading days until expiration